FL NFL SHE SBP L IT EB

PROBLEM SET NO. 10

Surplus and Valuation BAFACR4X
Intermediate Accounting III

Problem 10.1 CASH DIVIDENDS

On December 8, 2020, Jackie Company declared P1.80 cash dividend per P50-par value ordinary shares for
shareholders of record on December 20, 2020. The dividends are payable on January 5, 2020.

On December 20, 2020, the Ordinary Share Capital had a balance of P3,244,650. Treasury shares held as of the
same date is 2,783.
Journalize the foregoing transactions.

Problem 10.2 PROPERTY DIVIDENDS

On November 28, 2020, Pinxy Company declared dividends for shareholders on record of December 14, 2020.
Each outstanding ordinary share will receive 10 shares of Noypi Company from the shareholdings of Pinxy
Company. There were 64,500 outstanding shares on the date of record. The dividend is to be paid on January
5, 2021. The carrying amount of the investment to be distributed is P1,500,000.

The fair value of the Noypi shares are as follows: P2.50 on November 28, P2.60 on December 14, P2.30 on
December 31 and P2.40 on January 5.
Journalize the following transactions.

Problem 10.3 SHARE DIVIDENDS

On December 9, 2020, Yellow Company declared a bonus issue to its holders of its P50-par ordinary shares
when the fair market value of each share is P114. Issued shares were 67,000 and outstanding shares were 63,520.
The shares were distributed on December 29, 2020. The cost of each treasury share is P90.
Journalize the dividends assuming the independent scenarios:
a. The bonus issue is 20%.
b. The bonus issue is 10%.
c. The bonus issue of 5% came from the treasury shares.
d. The bonus issue of 10% resulted into fractional shares of 252. 130 full shares were subsequently issued.

Problem 10.4 SCRIP DIVIDENDS

On November 30, 2020, Regional Company declared 2% scrip dividends on the outstanding 80,000 P100-par
ordinary shares payable on January 30, 2021. The interest on the scrip dividends is 5%.
Journalize the foregoing transactions.

Problem 10.5 LIQUIDATING DIVIDENDS

Ipers Company, a wasting asset entity, declares dividend for each year. The following are the account balance
for yearends 2019, 2020 and 2021 before declaration of dividends.
2019 2020 2021
Capital Liquidated 70,000 100,000 150,000
Accumulated Depletion 80,000 100,000 165,000
Retained Earnings ??? 160,000 200,000
Determine the composition of the dividends declared on 2020 and 2021.

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 FL NFL SHE SBP L IT EB

PROBLEM SET NO. 10

Surplus and Valuation BAFACR4X
Intermediate Accounting III

Problem 10.6 APPROPRIATION

On January 1, 2020, 20% of the Rescue Company’s retained earnings of P10,000,000 was appropriated for the
construction of a new branch building. Cost of treasury shares held on the same date is P135,000. The following
occurred during the year:
• The building was completed at a total cost of P1,800,000.
• Additional appropriations were made for the construction of a new satellite for P1,500,000.
• 12,000 treasury shares were held on yearend at a cost of P20 each.
• P2,000,00 cash were restricted for the retirement of bonds payable due in 2021.
• Net Income for 2020 is P4,200,000.
• Dividends declared were P2,500,000.
Determine the composition of the Retained Earnings on December 31, 2020.

Problem 10.7 RETAINED EARNINGS

On January 1, 2020, the Retained Earnings of Panda Company had a balance of P2,800,000. The Share Capital
account composed of 200,000 shares issued and outstanding for P1,000,000. The following chronologically
occurred during the year:
• Reacquired 10,000 shares at P30 each to be held as treasury.
• A correction for the adjustment of the beginning balance of the Retained Earnings was made. The
depreciation expense for 2019 was overstated by P150,000. The tax rate is 30%.
• Declared and issued 30% stock dividends.
• Declared and paid P10 cash dividends.
The net income for 2020 is P3,000,000.
Determine the composition of the following:
a. Retained Earnings
b. Issued Shares

Problem 10.8 SHARE RIGHTS

Spicy Company reported the following Shareholders’ Equity on December 31, 2019:
Ordinary Share Capital, P200 par 10,000,000
Share Premium 500,000
It had the following transactions for 2020:
• On June 30, 2020, it issued share rights to its shareholders. Ten rights are needed to purchase an
additional share for P340 until December 31, 2020.
• On August 10, 2020, 10,000 rights were exercised.
• On October 9, 2020, 2,500 shares were issued through the exercise of rights.
Journalize the foregoing transactions.

Problem 10.9 RECAPITALIZATION

Roomy Company reported the following Shareholders’ Equity on December 31, 2019:
Ordinary Share Capital, 50,000 issued shares 10,000,000
Share Premium 500,000
Journalize the following independent scenarios for recapitalization:

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 FL NFL SHE SBP L IT EB

PROBLEM SET NO. 10

Surplus and Valuation BAFACR4X
Intermediate Accounting III

1. Shares are par value shares and is changed to no-par shares with P100 stated value
2. Shares are par value shares and is changed to no-par shares with P250 stated value
3. Shares are par value shares and par value is reduced to P150.
4. Assume zero balance on Share Premium. Shares are no-par value shares and is changed to par shares
with P100 par value
5. Assume zero balance on Share Premium. Shares are no-par value shares and is changed to par shares
with P150 par value
6. Assume zero balance on Share Premium. Shares are no-par value shares and stated value is reduced to
P120.
7. A 3-for-1 share split was initiated
8. A 1-for-2 share split was initiated

Problem 10.10 QUASI-REORGANIZATION

The Skinny Red Company has a deficit in retained earnings of P1,000,000. Business appears to be turning
around, so the president wants the company to go through a quasi-reorganization. The statement of financial
position of the company prior to the reorganization contains the following information:
Current assets 500,000
Land 1,500,000
Buildings, net 4,000,000
Liabilities 1,000,000
Ordinary share capital, P20 par value 6,000,000
Retained earnings (Deficit) (1,000,000)
As part of the quasi-reorganization, the current assets and buildings are to be written down by P100,000 and
P300,000, respectively. Ordinary share capital is to be exchanged and will be restated at a legal capital of
P4,000,000. The resulting additional paid in capital will be used to cancel the resulting deficit.
1. Journal entries to record the quasi-reorganization.
2. Prepare a statement of financial position immediately after the quasi-reorganization.

Problem 10.11 DIVIDENDS

The Dark Red Company, which started operations in 2018, paid dividends at the end of 2018, 2019 and 2020 as
follows:
2018 - P150,000 2019 - P260,000 2020 - P540,000
Through these years, the corporation has 250,000 shares of P10 par value ordinary share and 20,000 shares of
9%, P100 par value preference share.
Compute the amount of total dividends and dividends per share at the end of 2018, 2019 and 2020, on both
preference and ordinary share under each of the following assumptions:
1. Preference share is non-cumulative and non-participating.
2. Preference share is cumulative and non-participating.
3. Preference share is cumulative and fully participating.
4. Preference share is cumulative and participating up to 2%.

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 FL NFL SHE SBP L IT EB

PROBLEM SET NO. 10

Surplus and Valuation BAFACR4X
Intermediate Accounting III

Problem 10.12 BOOK VALUE PER SHARE

Common Company provided the following shareholders’ equity on December 31, 2019.
Preference Share Capital, 12% P100 par 1,000,000
Ordinary Share Capital, P100 par 4,000,000
Share Premium 2,000,000
Retained Earnings 1,000,000
Dividends have been paid on the preference share up to December 31, 2017.
Compute the book value per preference and ordinary share assuming these independent scenarios for the
preference share.
1. Cumulative and fully participating
2. Cumulative and participating up to 5%
3. Cumulative and non-participating
4. Non-cumulative and non-participating
5. Cumulative and has a liquidation value of P105

Problem 10.13 BOOK VALUE PER SHARE

Remember Company reported the following Shareholders’ Equity on December 31, 2019:
Preference Share Capital, 12% P50 par 2,000,000
Ordinary Share Capital, P100 par 4,000,000
Retained Earnings (Deficit) (900,000)
No dividends have been paid on the preference share since 2017.
Compute the book value per preference and ordinary share assuming these independent scenarios for the
preference share.
1. Preference as to assets
2. Preference as to dividends

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